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TOKYO, July 30 (Reuters) - JFE Steel, Japan’s second-biggest steelmaker, said on Thursday it would invest 27 billion yen ($220 million) in a steelworks being built by Taiwan’s Formosa Plastics Group in Vietnam in a bid to expand its global network to drive growth.
The decision comes at a time when the steel industry globally is struggling with overcapacity and sluggish demand in China, the world’s top buyer.
“This investment is based on our mid- to long-term growth strategy,” Shinichi Okada, executive vice-president of JFE Holdings Inc, JFE Steel’s parent, told a news conference on its earnings on Thursday.
“It is obvious that Japan’s local demand will be shrinking. Our long-term growth has to come from elsewhere in Asia,” he said.
JFE plans to take a 5 percent stake in the plant’s operating company, Formosa Ha Tinh Steel (FHS), which is investing $10.5 billion in the first phase to build a hot rolling mill, blast furnaces and steelmaking facility in Vietnam’s central Ha Tinh Province.
The steelworks, with initial capacity of 7 million tonnes of crude steel a year, is set to begin operating this autumn.
JFE will provide technical support and sell some of the products made at the plant through its customers in Southeast Asia.
Formosa Plastics, Taiwan’s top plastics conglomerate, plans to invest further in the second phase to expand the plant’s capacity to 22.5 million tonnes a year, but JFE’s Okada said the Japanese company had not decided whether or not it will join the expansion phase.
Under JFE’s three-year business plan unveiled in April, it will spend 200 billion yen on overseas expansion to propel its growth and counter an expected fall in demand in Japan where the population is shrinking.
Last year, JFE - the world’s ninth-biggest steelmaker by output - scrapped a plan to build its own steelworks in Asia due to the global supply glut.
JFE reported that its recurring profit, which is pre-tax before one-off items, fell 17.3 percent in April-June from a year earlier due to lower steel output and slumping overseas markets.
For the year to March 2016, JFE cut its profit forecast by 13 percent to 200 billion yen, citing reduced output and appraisal losses on raw material stocks after a collapse in the price of iron ore.
JFE will cut its crude steel output by 4.8 percent in July-September from a year earlier to 7 million tonnes to slash inventory, Okada said. ($1 = 124.0400 yen) (Reporting by Yuka Obayashi; Editing by Chang-Ran Kim and Alan Raybould)